CASE STUDY FOR

What is the optimal base selling price for Canty International’s New Product, Decoline?

Canty International receives RFP from Bryant Inns Canty International Design lab develops Decoline Low Cost to produce Decoline

Has specific development department – Design Lab. New product custom-made for Bryant Inns Currently no competition. Requires very little effort to clean and maintain.

New panels fit with current track systems Estimated service life is ten years. Internal supplies cut down costs of production. Incoming transportation costs are non-existent High quality materials at minimum cost

Internal transfer - quality control is essential New equipments expenses Selling and administration expense Customization prevent advance preparation Decoline’s price > Current price

Expansion of new product to new customers. Low costs of materials allow market flooding Opportunity to build image and brand loyalty.

Increasing competitive pressures. Current capacity restrictions limit expansion. Tailored customizations are costly. Economic recession limits potential consumers

Level of competition determined by the market structure of the industry. Monopolistic competition Better Product than the current wallpapers Products customization by each customer Elastic demand due to close substitutes

Bryant Inns’ Business of 150 inns and hotels across Canada Current customers of Canty International Hotels, Hospitals, Restaurants DayCares, Schools, Karaoke Bars, Any Commercial Building that require Soundproof, Fireproof, and Decorative walls

Costs Total Fixed Costs/month Supervision 1, Inspection Miscellaneous indirect labour Floor-space expense Small tools and materials building tables 10 years service life ($3450 / 10 years / 12 months = $28.75/month) Cutting machine 10 years service life ($480 / 10 years / 12 months = $4/month) 4.00 Selling and Admin expense 4, Total Fixed Costs 6,018.75

Variable Costs/month Environmentally cement: 500 m 2 / 10 m 2 = * 8.3 litre = 415 litre 415 litre * $0.96 = $ Direct labour: 500 m 2 / 10 m 2 = * 1.84 hours = 92 hours 92 hours * $7.10 = $ Techno-fibre: 90 cm * (1/100) = 0.9 metres 500 m 2 / 0.9 metres = metres metres * $6.55 = $ , Bamboo backing: 90 cm * (1/100) = 0.9 metres 500 m 2 / 0.9 metres = metres 1, metres * $2.97 = $ Total Variable Costs 6, Total Costs 12,359.28

Breakeven: $ / 500 m 2 = $24.72/m 2

Set an initial high price for product Lower price after sale saturation

Start off with a 35% mark up (innovators and early adopters) $24.72 (per m 2 ) x 1.35 = $33.37 = markup price $24.72 (per m 2 ) x 1.20 = $29.66 = second markup price Followed by 20% mark up (early majority and late majority)

Advantages: high prices result in high-quality image Value seems greater than other products Allows the company to reduce price

Disadvantages: Slow rate of adoption Discontent when price drops Lead to Shortage in Supply Competitors may undercut the high price

Set low initial price at the break-even price (zero profit) High volume of sales decrease the cost for Canty International

Advantages: Due to economies of scale:  Average Cost will diminish as production increases  New competitors will incur a higher cost than Canty International Discourages competitors Experience Curve Effect

Disadvantages: Setting the price low could give a negative perception of the quality of the product. Short-term losses due to the low price Could potentially lose out on producer's surplus.

Set the price for Decoline using the Value based pricing strategy Determines the price by the cost of owning the product over its useful life. No discount given to innovators and early adopters

The calculations for the Decoline are as follows: $ per meters squared installation fee $ every ten years* The calculations for the current product are as follows: $ per meters squared installation fee $ every two years $16.30 x 5 times = $ every ten years* *mark-up not included

Advantages: Innovators and early adopters will purchase Decoline Decoline can be sold at a higher price High price adds value to Decoline Environmentally friendly cement used

Disadvantages: Difficult to implement No reference prices for consumers Negative word of mouth

1 Early adopters and Innovators buy products at high price 2 During product lifetime, sales (revenue) decrease 3 Lower the Price to improve sales

PLACEPRICE PRODUCTPROMOTION DIRECT DISTRIBUTION Freight On Board, Factory Starting Price for Innovators/Early Adopters will be 35% above breakeven price. Price for Early/Late majority will be 20% above Breakeven price. Contact Customers using Current Product Sales Incentives Niche Marketing Decoline Customized Product 10 year Service Life Meets Standard Safety Requirements

Use a Market Growth Strategy Expand into US hotel Industry Expand to restaurants, malls, warehouses

Value Based Pricing Add Markup to Break even price of 45% $24.72 x 1.45 = $35.84 per meter squared

Marketing Mix Pricing Strategies: Value Based Price Skimming Price Penetration Cost of Ownership Diffusion of Innovation SWOT (Strength, Weakness, Opportunity, Threat) OPMT (Break Even)

Grewal, D., Levy, M., Persaud, A., & Lichti, S. (2009). Marketing (Canadian Edition). McGraw-Hill Ryerson Limited. Chapter 12. (All) Ragan, C. & Lipsey, R. (2008). Microeconomics (Twelfth Canadian Edition). Pearson Addison Wesley. Chapter 7, 9. (All)